Legal Implications of Procurement Decisions – A Lesson in Process, Analysis, and Decision Making

Today I want to share with you an interesting story from New Zealand.

In a landmark case from Auckland, we learn about a lawsuit brought by an incumbent vendor who lost a bid with New Zealand’s Ministry of Health.

The incumbent vendor (a Company called Problem Gambling Foundation (PGF)) lost a public bid to the Salvation Army for providing gambling support services.

PGF sued the Ministry of Health claiming that they improperly awarded the work to the Salvation Army as a result of process errors, factual errors (related to their analytics), and a biased view the reviewers had against PGF.

Although PGF’s initial filing was upheld, an appeals court in New Zealand has overturned the courts finding.

I will let you read the brief for yourself, but I did want to highlight a few critical learnings anyone in procurement (even if you don’t live in New Zealand) should adopt.  These learnings are important because these are the foundations upon which the Court upheld the procurement decision and overturned the vendor’s claim.

A Proposal is not a contract

If you don’t already use an Instructions to Bidders (ITB) document with your solicitations, you should.  ITB’s typically include language such as:

This RFP does not commit CLIENT COMPANY to any specific course of action.  Circumstances may cause CLIENT COMPANY to delay the commencement of and/or cancel this solicitation.

The issuance of this RFP does not bind CLIENT COMPANY to accept any proposal, in whole or in part, whether or not it includes the lowest bid, even if the criteria described in the RFP are met, nor does it bind CLIENT COMPANY to provide any explanation or reason for its decision to accept or reject any proposal.

Now the second part of that may have to be revised in public procurement but for the private sector, this language protects you from claims like the one that PGF made.

In the case of PGF, the court found that statements such as these relieved the Ministry of Health from establishment of contractual effect from PGF’s submission of a proposal.

Use of numerical scoring

In my practice, I use Kepner Tregoe (KT) analysis in every sourcing decision.  I find that when used properly, KT is an objective and effective decision making tool.

Unfortunately, sometimes it’s not used properly and in such cases, it is rather imperfect.

In the case of PGF, it seems that a similar numerical scoring methodology was used and the plaintiff alleged that it was used incorrectly.

The court in this case found that using such a system does not preclude the exercise of human qualitative judgment in reaching an award decision.

As such, even if used incorrectly or if the analysis itself contains flaws, decision makers cannot be held liable for deviating from these analytics when making award decisions.

Now, I hope you always use KT properly, but even if you don’t, the use of objective analytics is a great way to help make decisions even if you ultimately deviate from the analysis.

There are various forms of Bias

As procurement professionals it’s critical that we remain unbiased in the way we view Vendors.  Unfortunately, over time as we become more and more familiar with certain key suppliers or if you procure for a specific Company you become familiar with incumbents, your views may not always be neutral.

The court in this finding stated that the court cannot intercede in award decision simply because a decision maker had a bias for or against a Vendor.

The court upheld that holding a prior view on a bidder does not constitute an actionable bias and that prior knowledge was in fact beneficial in such decisions.

Now, let me warn you that you still need to be somewhat objective.  Read my article on why you should avoid single source awards.

The court held that “fairness and good faith only require honesty and a willingness to consider information which might challenge the existing view”.  This basically means that as long as you are open to the possibility that your view of a vendor can be wrong, you can still hold strong views without it being cause for a claim.

Conclusion

So I found this case very interesting.  I hope you did too.  Even though this case is from the opposite side of the world, I see these finding as very applicable to what I do here in the US in private sector procurement.  For you, I hope you see the value and can find ways to apply this in your procurement.

Thanks for reading.  If you enjoyed this content, please feel free to browse my previous articles and please like, share, comment, and subscribe.  This helps promote my content and is greatly appreciated.

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